Financing Constraints and Entrepreneurship

by William R. Kerr & Ramana Nanda

Overview — Financing constraints are one of the biggest concerns impacting potential entrepreneurs around the world. Given the important role that entrepreneurship is believed to play in the process of economic growth, alleviating financing constraints for would-be entrepreneurs is also an important goal for policymakers worldwide. In this paper HBS professors William R. Kerr and Ramana Nanda review two major streams of research examining the relevance of financing constraints for entrepreneurship. They then introduce a framework that provides a unified perspective on these research streams, thereby highlighting some important areas for future research and policy analysis in entrepreneurial finance. Key concepts include:

Promoting entrepreneurship is an important goal of many governments, and researchers need to define for policymakers a more unified perspective for how studies and samples fit together.
The "slice" of entrepreneurship examined is very important for the appropriate positioning of research on financing constraints, but studies too often fail to consider this dimension in the conclusions drawn from empirical results.
The framework presented here is useful for thinking about the appropriate role of public policy in stimulating entrepreneurship.